A company is considering hedging its foreign exchange risk. It has made a purchase on 1st July, 2024 for which it has to make a payment of US$…
CA Final · Advanced Financial Management · MTP · January 2026
A company is considering hedging its foreign exchange risk. It has made a purchase on 1st July, 2024 for which it has to make a payment of US$ 60,000 on December 31, 2024. The present exchange rate is 1 US $ = 83. It can purchase forward 1 $ at 82. The company will have to make an upfront premium @ 2% of the forward amount purchased. The cost of funds to the company is 12% per annum. The company hedges its foreign exchange risk using above-mentioned forward contract. From the information given above, choose the correct answer to the following questions:
Suggested Answer and Working Notes:
Correct Answer: Option (B)
a profit of 1,35,696
Topics: Foreign Exchange Exposure and Risk Management
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